Lecture Managerial accounting for managers (4e) - Chapter 10: Flexible budgets and performance analysis - TRƯỜNG CÁN BỘ QUẢN LÝ GIÁO DỤC THÀNH PHỐ HỒ CHÍ MINH

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PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

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Learning Objective 10-1

Prepare a flexible

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Budgets

Planning budgets

are prepared for

a single,

planned

level

of activity.

Performance

evaluation is difficult

when actual activity

differs from the

planned level of

activity.

Hmm! Comparing

static planning budgets

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Improve performance evaluation.

May be prepared for any activity

level in the relevant range.

Show costs that should have been

incurred at the actual level of

activity, enabling “apples to apples”

cost comparisons.

Help managers control costs.

Let’s look at Larry’s Lawn Service.

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Larry’s Lawn Service provides lawn care in a planned

community where all lawns are approximately the same size.

At the end of May, Larry prepared his June budget based on

mowing 500 lawns. Since all of the lawns are similar in size,

Larry felt that the number of lawns mowed in a month would

be the best way to measure overall activity for his business.

Larry’s Lawn Service provides lawn care in a planned

community where all lawns are approximately the same size.

At the end of May, Larry prepared his June budget based on

mowing 500 lawns. Since all of the lawns are similar in size,

Larry felt that the number of lawns mowed in a month would

be the best way to measure overall activity for his business.

Larry’s Budget

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Deficiencies of the Static Planning

Budget

Larry’s Planning Budget

Revenue/Cost Planning
Formulas Budget

Number of lawns (Q) 500

Revenue ($75Q) $ 37,500

Expenses:

Wages and salaries ($5,000 + $30Q) $ 20,000
Gasoline and supplies ($9Q) 4,500
Equipment maintenance ($3Q) 1,500
Office and shop utilities ($1,000) 1,000
Office and shop rent ($2,000) 2,000
Equipment Depreciation ($2,500) 2,500

Insurance ($1,000) 1,000

Total expenses 32,500

Net operating income $ 5,000

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Budget

Actual
Results
Number of lawns 550

Revenue $ 43,000

Expenses:

Wages and salaries $ 23,500
Gasoline and supplies 5,100
Equipment maintenance 1,300
Office and shop utilities 950
Office and shop rent 2,000
Equipment Depreciation 2,500

Insurance 1,200

Total expenses 36,550
Net operating income $ 6,450

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Revenue/Cost Planning Actual

Formulas Budget Results Variances
Number of lawns (Q) 500 550

Revenue ($75Q) $ 37,500 $ 43,000 $ 5,500 F

Expenses:

Wages and salaries ($5,000 + $30Q) $ 20,000 $ 23,500 $ 3,500 U

Gasoline and supplies ($9Q) 4,500 5,100 600 U

Equipment maintenance ($3Q) 1,500 1,300 200 F

Office and shop utilities ($1,000) 1,000 950 50 F

Office and shop rent ($2,000) 2,000 2,000 
-Equipment Depreciation ($2,500) 2,500 2,500

-Insurance ($1,000) 1,000 1,200 200 U

Total expenses 32,500 36,550 4,050 U

Net operating income $ 5,000 $ 6,450 $ 1,450 F

Larry's Lawn Service
For the Month Ended June 30

Deficiencies of the Static Planning

Budget

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Revenue/Cost Planning Actual

Formulas Budget Results Variances

Number of lawns (Q) 500 550

Revenue ($75Q) $ 37,500 $ 43,000 $ 5,500 F

Expenses:

Wages and salaries ($5,000 + $30Q) $ 20,000 $ 23,500 $ 3,500 U

Gasoline and supplies ($9Q) 4,500 5,100 600 U

Equipment maintenance ($3Q) 1,500 1,300 200 F

Office and shop utilities ($1,000) 1,000 950 50 F

Office and shop rent ($2,000) 2,000 2,000 
-Equipment Depreciation ($2,500) 2,500 2,500

-Insurance ($1,000) 1,000 1,200 200 U

Total expenses 32,500 36,550 4,050 U

Net operating income $ 5,000 $ 6,450 $ 1,450 F

Larry's Lawn Service
For the Month Ended June 30

Budget

Larry’s Actual Results Compared with the Planning Budget

F = Favorable variance that occurs when

actual costs are less than budgeted costs.

U = Unfavorable variance

that occurs when

actual costs are greater than budgeted costs.

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Revenue/Cost Planning Actual

Formulas Budget Results Variances
Number of lawns (Q) 500 550

Revenue ($75Q) $ 37,500 $ 43,000 $ 5,500 F

Expenses:

Wages and salaries ($5,000 + $30Q) $ 20,000 $ 23,500 $ 3,500 U

Gasoline and supplies ($9Q) 4,500 5,100 600 U

Equipment maintenance ($3Q) 1,500 1,300 200 F

Office and shop utilities ($1,000) 1,000 950 50 F

Office and shop rent ($2,000) 2,000 2,000 
-Equipment Depreciation ($2,500) 2,500 2,500

-Insurance ($1,000) 1,000 1,200 200 U

Total expenses 32,500 36,550 4,050 U

Net operating income $ 5,000 $ 6,450 $ 1,450 F

Lecture Managerial accounting for managers (4e) - Chapter 10: Flexible budgets and performance analysis - TRƯỜNG CÁN BỘ QUẢN LÝ GIÁO DỤC THÀNH PHỐ HỒ CHÍ MINH

PowerPoint Authors:

Susan Coomer Galbreath, Ph.D., CPA

Charles W. Caldwell, D.B.A., CMA

Jon A. Booker, Ph.D., CPA, CIA

Cynthia J. Rooney, Ph.D., CPA

Learning Objective 10-1

<b>Prepare a flexible </b>

Budgets

Planning budgets

are prepared for

a single,

planned

level

of activity.

Performance

evaluation is difficult

when actual activity

differs from the

planned level of

activity.

Hmm! Comparing

static planning budgets

Improve performance evaluation.

May be prepared for any activity

level in the relevant range.

Show costs that should have been

incurred at the actual level of

activity, enabling “apples to apples”

cost comparisons.

Help managers control costs.

<b>Let’s look at Larry’s Lawn Service.</b>

Larry’s Lawn Service provides lawn care in a planned

community where all lawns are approximately the same size.

At the end of May, Larry prepared his June budget based on

mowing 500 lawns. Since all of the lawns are similar in size,

Larry felt that the number of lawns mowed in a month would

be the best way to measure overall activity for his business.

Larry’s Lawn Service provides lawn care in a planned

community where all lawns are approximately the same size.

At the end of May, Larry prepared his June budget based on

mowing 500 lawns. Since all of the lawns are similar in size,

Larry felt that the number of lawns mowed in a month would

be the best way to measure overall activity for his business.

<b>Larry’s Budget </b>

Deficiencies of the Static Planning

Budget

<b>Larry’s Planning Budget</b>

Budget

Deficiencies of the Static Planning

Budget

Budget

<b>Larry’s Actual Results Compared with the Planning Budget</b>

<b>F = Favorable variance that occurs when </b>

<b>actual costs are less than budgeted costs.</b>

<b>U = Unfavorable variance </b>

<b>that occurs when </b>

<b>actual costs are greater than budgeted costs.</b>

Deficiencies of the Static Planning

Budget

<b>Larry’s Actual Results Compared with the Planning Budget</b>

<b>Since these variances are </b>

<b>unfavorable</b>

<b>, has </b>

<b>Larry done a poor job controlling costs? </b>

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